Category Archives: Market Updates

Everything is connected… and the wires are tangled

Sarkozy: Do we know what we’re doing? Merkel: Shut the fuck up…

About two days ago I had a friend ask me for some help for an interview he’s got coming up. The guy he’s been connecting with sent him one of his weekly write-ups about the current economic/market conditions and told him that’s the sort of thing he’d have to start knowing. Here’s basically what I talked to him about (this will be a long post, I’m trying to be in-depth so anyone can follow).

For starters, the sovereign debt crisis in Europe is the most important thing going on right now. I’ll get into how it affects the US in a minute. Greece is the most likely default case of anyone right now, as CDSs on greek debt have about a 450 bp spread (i.e., expensive as shit to buy those CDS’s, b/c there’s a very high probability of default). The ECB/IMF/EFSF (European Financial Stability Facility) are continuing to pump money into its bond markets, as well as Italian, Spanish, and Portuguese bonds. Whether they think Greece will ever be able to repay this debt is almost irrelevant (they won’t), so these cash flows are being used to keep rates from ballooning and to stop a full on default. Worst case scenario is Greece defaults, which triggers CDS payouts (not good for the US), margin calls, and significant flight from European sovereign debt. The last part of course could see defaults by more important countries such as Spain and Italy, but that is less likely (I refuse to say highly unlikely b/c as you can see this shit has never really been seen before). The main problem is European banks, who hold a huge amount of these sovereign bonds. If we see a restructuring of sorts, or huge drops in bond prices, these banks will have to make enormous writedowns. After this, further possible events include major drops in equity and bond prices of these banks as investors flee from fear the banks will have liquidity, or even solvency issues. This of course is a classic self-fulfilling prophecy: investors fear they’ll lose big from these banks, so they dump them, which of course causes the actual problem they feared in the first place.

The US comes into this directly in two ways. First, US banks have written a colossal amount of CDS’s for European banks over the past 3-4 years. As of early July, we’ve sold $34 bln, $54 bln, and $41 bln in Greek, Irish, and Portuguese debt CDS’s alone. That’s not even counting CDS’s on European banks. If there’s widespread default (again, unlikely, but possible), then the US will be losing BIG on those payouts. The second way is economic rather than financial. Europe is one of our main trading partners, and if they enter a recession (probably will), we’ll be taking a big hit in export losses and possibly face import shortages as production slows down there. This also ties into emerging markets (esp. China), as expectations are quickly rising that we’ll see a pretty hard landing in a year or two. In other words, nearly every country is facing stagnant (or negative) growth for a few years, which… is bad.

For those who’ve wanted to actually stay in a good mood, and therefore haven’t watched the news in awhile, the main political/economic topics right now are the US debt level, and our struggling economy. Before I get into this, let me make on thing clear: you cannot solve a debt crisis in a recession. Whether or not the media/politicians have been playing up the debt situation, I really have yet to see any issues arise from the ACTUAL debt level itself. Obviously the track we’re on is unsustainable and blah blah blah, but I’m talking over the course of a couple years. Our gov’t is having no trouble at all borrowing money; the 10YR Treasury is still sub-2%… from a buy&hold/investment standpoint that is absolutely outrageous. It just goes to show that when the world is freaking out, everyone looks to the US.

As much as I hate to say it, the real issue is the political system. I’m not saying we need to raise taxes or cut spending or whatever the buzzwords are right now, I mean the political process is absolutely KILLING our economy right now. It took over half a year for the debt limit to be raised, literally up to the last possible moment. The next day, BAM! Equities plummeted and Treasury yields approached record lows (and to my utter disbelief, reached those lows a few weeks later). This of course wasn’t expected, as the pundits had been chirping “yields will pop as the world realizes we can’t repay our debt!”. Bull. Fucking. Shit. This isn’t a series of graphs relating debt levels to interest rates or whatever, this is real life. What’s more, we have an entire year before election season, and you can bet your sweet ass no politician will be willing to make the tough decisions if it means pissing off their voters.

The debt ceiling squabble was one of the most atrocious displays of leadership I’ve ever seen, and I’m not exaggerating. The hard decisions weren’t even close to being made. If I remember correctly, we raised the debt ceiling by about $1.5 trillion and promised to cut about $2 trillion over the next 10 years. I don’t even have to do the math to see that $2 trillion over 10 years is a joke when we’re projecting a $1.5 trillion deficit in 2011 alone. If anything, all we did was push the decisions off for another few months. The debt level itself isn’t the immediate issue, it’s the perception that our leaders are unable to make the necessary decisions to get the US on the right path.

This perception is twofold. On one side we had non-stop political bashing occurring all summer long, with both sides bickering over what should be cut, what’s off the table, and who’s to blame for our national debt’s recent surge. On the other side, we have a country who is on the brink of relapsing into recession (sidenote: I don’t know why, but I think the term double-dip is so fucking stupid). Unemployment is STILL above 9%, and won’t return to normal levels for awhile. What’s more, I believe the drop we’re seeing in equities is due to people realizing the Fed has run out of bullets. Which is another way of saying that their policies aren’t doing what they said they would. Rant:

Let me get this straight. The Fed is making sure rates stay low, which is a good thing to have. But jesus christ have you not opened your eyes? I’m usually agree with the Fed/Bernanke, but what the fuck. Rates are at all time lows! And nobody is borrowing! Not only are rates at all time lows, but they’re there without your doing. People aren’t arbitraging Treasuries, they’re using them as a bank. If we have another international recession, Treasuries are gonna continue to be the safest asset. So what is the point of more bond buying? Does buying the 10YR down to 1.85 from 2 and the 30 from 3.1 to 2.9 really do anything? Rates are there. Save the ammo. God damn.

Alright back to the main point, bulls are currently pointing to corporate profits and equity levels as the main reason why we shouldn’t end up in a recession. I think that that is exactly why we’re entering a recession. Corporations are preparing for the worst by hoarding cash and laying people off. The majority of them will weather the storm to come, but people as a whole are left out to dry. If everyone is scared to lose their job, they’re gonna take whatever pay they get and hold onto it. Which, ya know… doesn’t help the economy grow. The uncertainty that’s clouding everything is all hanging on one major thing–Europe. People are waiting for Merkel/Sarkozy/anyone to come out and save the day. Obviously if they had the strategy to end all strategies for fixing the European debt crisis, we’d have heard about it already. As of today, Germany has said they’re capping their bailout funds at 221 billion euros, which gives the EFSF about 450 billion euros when recapitalization is needed (for both banks and the various countries who will undoubtedly need them).

I’m pretty lost right now, so I’m just gonna end this here. I’ll go back and go through each area more in depth throughout the next week(s), but this is a dece start. As you can see, everything is connected, even more so than 4 years ago. My prediction: we’re not gonna see an end to this until the EU is literally on the brink of collapse. That’ll be an interesting time… hopefully I have a job by then.

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Rationale behind stock splits

Jobs: So did you hear my stock is at 370 now?  Gates: Ya… you’re still a gaydude tho

So I basically haven’t even thought about posting on this blog anymore once I started my summer internship, but I thought I might as well keep the bitch goin’. I got in an argument the other day with my mom after telling her about the stocks I’ve been looking at lately. I told her OpenTable Inc. (OPEN) was trading at 160/share the day before, and she gave me this look like I was a complete idiot. For the sake of me looking only slightly retarded, I was thinking of Salesforce Inc. (CRM), while OPEN was closer to 80 (down to 75 since then). Well the argument came when she said something like, “Oh are you looking at it that high so you can wait for it to split?” And I said something like, “Uhhh no not really, there’s a lot of stocks above 100/share”. Then came the ever-present tone of, “Oh DopiesChron, don’t act like you’re some big shot know-it-all nobody likes that blah blah blah”. Well… I went to work the next day and asked my boss what he thought about the conversation, and it turns out we were both right for different reasons.

My point was that I wasn’t playing these stocks for the split, but for the fact that they should grow regardless of a split. And that 1000 shares at 50 should be no different from 500 shares at 100. Academics love that last point–and it turns out it’s total bullshit and I’m an idiot (can I call my econ profs idiots now too?). The rationale behind a lot of stock splits is this: many people see a triple digit price and think it’s too expensive for them, but once a stock splits they think they’re getting a bargain and will snap them up. This is because many investors feel wealth based on their share amount, not the total value of their shares. While this may not seem like “rational behavior”, it makes a lot of sense. Grams over here didn’t wanna buy 20 AAPL shares at 300 because it looks like the only way it can go to her is down… now she’s crying herself to sleep as the price hits 370. Then there’s a 4:1 split and she thinks 75/share is the deal of a lifetime. Not only that, she can have 80 shares instead of 20… and that makes her feel goodski.

I saw on Bloomberg the other day some guy pull up a pie chart. It showed the share of the stock market held by… I wanna say Hedge Funds, Brokers (as in Wealth Advisors, etc.), and Institutional Investors. It showed that Brokers, who have clients ranging from $40 grand to $20 mil in assets, make up about 44% of that pie. In other words, a large amount of people are susceptible to behaving exactly like what I just described. Obviously, there’s a simple way to play off of this. Looking at historical prices, you’ll notice a lot of good, growing companies will have pops in their share price after the announcement of a split. Once the split occurs, people will be calling their brokers telling them to buy shares while the price is so low. So, the pop that occurs after the announcement is usually due to people trying to get a position in before the split, so they can ride out the bull when smaller investors get in.

Now, what usually happens is the price can jump as much as 20% the first day after a split is announced, with some earlier gains maybe being attributed to speculation of a split (or you know Rajat Gupta personally and you don’t have to speculate, you just know exactly when they’ll announce it). So, the trick is being able to get in before that initial price pop. Moreover, a 2:1 split is great, and the above scenario will likely play out. But a 3:1 or higher will usually make the institutionals back out, because they don’t want to hold so many shares. So, they’ll liquidate some or all of their position after (or before) the split.

This brings me back to my initial point: that I was looking at CRM for strong growth, not specifically to play a split. This is because we currently have way more triple digit stocks now than ever before. Whether or not they’ll eventually split is above my head, but there could be a few reasons why they’ve stayed so high. For one, the high prices reduce volatility, making their stock appear strong and their board members appear smart (the ones who decide on a split). Another more low-brow approach is that share price has become almost like dick-size to board members and chief officers. I can see it now… Reed Hastings of Netflix walking around a party saying “Hey slut, Netflix is trading at 280 right now… and if you stay at my place it might be 290 by the time you wake up”. Fuckin’ CEO’s. Always a party.

Lesson on risk reversal positions

I was reading a Reuters article this morning, and they mentioned how euro risk reversals are at a 6-month high, presumably because hedge funds are shorting the euro. For the sake of news, the euro has been unable to break the $1.4500 mark lately, and is at $1.4169 after dropping 271 pips today (.0271 percentage points). Good news for those who think the Fed is trying to inflate away our debts, I’ll be doing a post on that bullshit sometime soon (basically people who think that are fuckin’ morons). BUT, just reading that one headline I realized I have no idea what a risk reversal is for. So, I did some fuckin’ readin’ and now I know what it is. And because I took the time to read up on what they’re used for… I’m gonna spread some god damn knowledge on ya ass. For clarity, I’m gonna explain it as if my friend, Petrone, is bullish on Microsoft stock (he heard they bought Skype and thinks they’re gonna gain like 20 fuckin’ points or some shit).

So, Petrone hears about the Skype buyout and gets all excited about Microsoft stock. It’s at about $24/share, but let’s assume it’s $50/share for this example. Petrone thinks Microsoft is gonna enjoy a big rally and wants to go long the stock. But, he doesn’t just wanna have a straight-up position in a market as uncertain as today’s. So instead of just buying the stock for $24/share, he’s going to enter into 2 option contracts, this is the risk reversal strategy.

First, a quick refresher on the options he’ll buy. Petrone will go long a call option. Buying a call option means you pay a premium (say $5) for the right to buy the underlying (MSFT stock in this case, $50 right now) at a specified future price, the strike price (say $60), at or before the expiration date (say 1 year). If you are the buyer of the option you don’t have to purchase the underlying, you just pay the premium for the right to purchase it before the contract expires. So, when Petrone is long a call option, he’s hoping the underlying current stock price (spot) will be greater than the strike price before the option expires. If that’s the case, he can turn around and sell the stock he just bought for the market/spot price. If the difference between the spot and strike is greater than the premium he paid, then he’ll make a profit. In our example, if MSFT is worth $70/share at some point before the expiration, Petrone will make a profit of $5 ($70-$60-$5=$5) if he exercises the option at that point. He pays the premium when purchasing the option and the strike price when exercising the option, then sells the asset at the market/spot price and hopefully profits.

Now, in the case of a risk reversal, Petrone is going to short a put option before he’s does the above. Much like buying a call option, shorting a put option means Petrone thinks MSFT’s spot price will rise in the future. Again, the buyer of a put option pays a premium (say $5) for the right to sell an underlying asset to the seller of the option, Petrone, at the strike price (say $40). So, the buyer is hoping the spot price will fall below the strike price by at least the value of the premium, because then he’ll be selling the stock at a strike that’s higher than the market/spot price and will profit. In Petrone’s case, he’s going to be the seller of the put option, so he’s hoping the spot price stays above the strike price (the buyer of the put option won’t exercise the option, and Petrone will make a profit of $5, the premium).

The reason Petrone shorts a put option first, is so he can use the premium he earns from it, $5, to buy the call option at $5. So, if the spot price is originally $50 and never falls below $40 or rises above $60, neither option will be exercised, and he’ll break even. If the spot rises above $60, then Petrone will exercise the call option and make a profit of the spot minus $60. For instance, if 7 months after he enters both contracts the spot is $70, he’ll make $10 (spot-strike-call premium+put premium; $70-$60-$5+$5=$10). If the spot falls below $40, the buyer of the put he sold will exercise the option, and he’ll lose the amount it falls below $40. For instance, if 7 months later the spot is $30, he’ll lose $10 ($30-$40-$5+$5=-$10).

So, instead of just buying MSFT at a $50 face value, Petrone can make a synthetic long position with both a long call and short put with very little money to begin with ($0 in our example). Risk is reduced big time as you can see, and so is the possible reward. The increased leverage he can use more than makes up for the difference in volatility. If there’s a lot of volatility (spot goes ±$10) there’s a fat possible gain/loss with big leverage, but if there’s low volatility (spot above $40/below $60) there’s very little cost, if any.

Back to the original reason for writing about this, euro risk reversals are at a 6-month high. A high risk reversal means that the call option is more volatile than the put option. In other words, long positions on the euro/dollar are riskier positions than short positions. So, the risk reversal levels are good indicators of where an asset’s price is going, especially on currencies. In this case, the euro is not going to be doing well in the future.

… That probably made no fuckin’ sense.

Equities keep plummeting

Dow is down 172 11,951 and S&P is down 18 to 1,270 on the day. I’m beginning to get the feeling that the markets are playing off the news too much. Not only that, but expectations for the year were just incredibly too high. Now, Obama’s analogy of “if you get hit by a truck… it’s gonna take a while to mend ya know?” may be extremely retared, but he’s not wrong on the original point. You don’t have the Dow literally lose like 50% over a year and a half and just expect 3% yearly growth right off the bat. To reiterate what many have pointed out, this was the worst recession we’ve had since the Great Depression. These high expectations are only hindering growth. Record corporate profits obviously imply they’re hoarding a lot of cash, but it’s not like they’re gonna keep it forever. That money will be reinvested. Unemployment will eventually decrease. Have some faith in the market.

Larry Fink was on CNBC today giving his insights. Dudes a baller, I usually believe almost everything he says. Plus he just doesn’t look like a scumbag. He’s bullish on equities. One of his main reasons is the fact that the bond market is extremely overstuffed. I just posted a day or two ago about how some people are hoppin’ on bonds because they’re just looking for any safe rate of return. Well, there’s almost no profit opportunity now. The private sector benefitting a lot with the weak dollar and are in a great position to grow. Honestly, there’s not much room for this economy to go south unless you consider a depression a possibility. Which it’s not, and a “double dip” won’t happen either. There’s far too much liquidity for another recession. The worst possibility I see is just very slow growth for another year or two from uneasy investment. But the markets, and the economy as well, will pick up.

As for my thoughts on the speculation of QE3, I’ve found myself getting consistently annoyed of those who say it has failed. Investment has increased over the past year. The unemployment rate has dropped over 1% since it started, and I’d venture to say that without QE it wouldn’t have dropped nearly that much (as in it would probably be the same). People are so quick to say QE has failed because the growth is so slow, but where’s the evidence that the economy would be in a better position without it? I don’t see it and I haven’t heard it. All these fuckin’ bears are just scaring everybody, that’s what I think. A little more optimism would help ease consumer confidence.

Recovery update

New data out from the Commerce Department shows the trade deficit narrowed 6.7%. Even though oil was trading at the highest levels since September of ’08, the deficit was reduced to about $43.7 billion. While some of this has to do with imports from Japan dropping 25% with all the shit going on there, record exports are forcing many economists are now claiming they’ll revise the Q2 GDP growth rate. 1.8% was pretty hard to understand, so hopefully there’ll be a consensus on a higher rate. The deficit numbers also pushed stocks up about 1%, with the Dow up 75 points and the S&P up about 9 points. I wouldn’t expect those rises to continue tho if shitty numbers keep comin’ out.

New claims for unemployment benefits increased by 1,000, to 427,000 this past week, while forecasts expected that number to drop instead. I feel like that’s a big statistic, even if it was only 1,000 new claims. That means 1,000 more people we’re just like “fuck… might as well get paid to do nothing”. It’s hard to decipher what unemployment stats are actually saying about the economy, because we’re at a point now (and have been for awhile) where some people would rather take the unemployment checks than work at or near minimum wage. This is where my conservative side kicks in and I wanna fuckin’ trash the idea that we even have unemployment benefits… but I ain’t gonna hate. If I was 5-years out of a good college and there was no hope of a job except pumpin’ gas for $7.25 an hour, it’s possible I might do the same thing. Seems a little emasculating to me tho, prolly why some of those people have the balls to do something about their situation.

Deficit reduction talks are gonna start up soon. Interesting to see if the Dems can get the GOP to agree to some tax increases.

10-year yields down after Bernanke speech

Dopies Bill!

Bernanke mentioned in yesterday’s speech that further Fed action might be required. Basically, the recovery is slower than expected. Some sectors are growing while others remain stagnant, things are not that dopies right now, but should be getting more chron in the next two quarters. Today’s 10-year note auction produced a yield of 2.967. The drop also caused the May 10-years, which yield 3.125, to be pushed up 1/4 to 101 11/32. Justin Lederer of Cantor Fitzgerald said, “With the future uncertain, investors are grabbing as much yield as possible, even if we aren’t at amazing yield levels. The market is playing it safe right now.” Ya, that explains it. The bid-to-cover today was 3.23, above the average of 3.09.

Dogshit numbers over the past couple weeks have been dominating equities. The Dow closed 21.87 points lower than yesterday, at 12,048.90. The S&P fell another 5.38 points to 1,278, with a lot of people saying 1,200 could be a dangerous level and could prompt a sell-off. Let’s fuckin’ hope not. It’s gonna be interesting to see what happens when QE2 wraps up this month. The 2-year/30-year spread was down today to 3.83 from 3.85 yesterday, the high since March. The prospect of continued low interest rates has been pushing this spread as the economic data has supported continued Fed intervention. For clarification, people are continuing to buy more 2-years than 30-years on the hopes that QE will be extended and prices will go up, which widens that spread.

Jamie Dimon asks Bernanke “Whatup, Bitch?”

During the Fed Chairman’s press conference today, Bernanke got a tough question from dopeboy Dimon. He asked:

“Has anyone bothered to study the cumulative effect of these things, and do you have the fear, like I do, that when we look at it all, it will be the reason” why banks aren’t lending, he asked. “Is this holding us back at this point?”

UpdateVideo

He goes on to mention that exotic derivatives are few and far between now, boards and regulators are tougher, banks’ liquidity and capital levels are very high, and lending practices are far tighter than in the past. On top of that, the new proposed 3% surcharge for “big banks” out of the Basel III discussions has created even more uncertainty.

People have been fuckin’ loving Jamie Dimon over the past year or two. JPMorgan is arguably on top of the financial sector right now, especially with GS on the ropes. One of the issues with him asking this question all the way down in Atlanta is pretty obvious: why did he have to ask such a basic (but important) question in a public forum? Two possibilities. The first is he’s had this conversation with Bernanke before, but didn’t get the answer he wanted. Asking it in front of an international audience might force Bernanke to give a different, crowd-pleasing answer. The second, and more intriguing one is that he’s actually never been able to ask the question. In other words, he’s tried to get an answer out of the Fed (preferably Bernanke) and has never gotten one. If that’s the case, then that’s not good. Even though conspiracy theorists would consider it a sign of our impending enslavement to the Fed, the CEO of JPMorgan should be able to have a conversation with the Chairman of the Fed pretty easily.

Now I’d love to have a strong opinion on this, but there’s not much of a point to that. Banking regulations could be a reason for slow growth (strict lending reduces consumer spending), but businesses are borrowing at ridiculously low levels. Corporate capital accumulation and investment is very strong right now. The uncertainty in the banking sector could just as easily be a symptom of the slow recovery. Some of that chicken or the egg bullshit I guess.

Solid market action today

The European debt crisis is finally beginning to be handled. The ECB has said that they will probably back Greek debt rollovers. After all of the talk of default it really makes you wonder. What is the point of pretending a country will be allowed to default? The US is on the brink of defaulting, but there’s no chance that happens. If the debt ceiling isn’t raised and we do default, shit is gonna hit the fan. Rates will skyrocket, and we can kiss a recovery good-bye. And for what? To teach us a lesson? Doesn’t make very much sense to me.

But, finally we’re seeing the euro bounce back up, hitting a 1-month high against the dollar. With the current state of US consumers (i.e., not spending), we gotta hope this climb continues if we want exports to pull us out of the hole. Rates have been higher in Europe for some time now, so what’s hopefully the end of the euro plummet will help. The slip in the euro was undoubtedly due to European debt crisis worries, but the continued asset purchases keeping US rates extremely low should help the euro’s rebound. We’ll find out today what Bernanke says about the future of QE2. It’d be nice if he could put sort of a range on the market and say something like “if the market falls we’ll be ready to add some liquidity”, which would hopefully keep shorts out without sparking a rally. Especially now with economic data that doesn’t support the movements of the market, people have been jumping onto rallies because there’s not much information to say they should do otherwise. Hence the bubble-worries over the past few months.

The recent success in the euro/dollar is now being seen in equities as the S&P 500 index bounced off a 2 1/2 month low. As of now, the index is trading at 12.2 times estimated profits… which is cheap as hell. Meanwhile, oil is dropping as expectations of OPEC announcing an increase in production quotas gain steam. This should help transportations, and in turn exports, who have faced a lot of problems from oil prices over the past few months. I just heard today that the 16 largest US airlines reported an on-time rate of 75.5%… weather has been a motherfucker lately.

I have to agree with what Obama just said in his press conference with Angela Merkel. Freaking out over one month of poor economic data is exactly what we’re trying to avoid. If focus continues to be on the short-term, there’s no chance we’ll keep volatility and speculation down. While neither is explicitly bad, too much is obviously bad for growth. Hopefully the increases we saw today will mark an upturn in markets. With poor housing markets, and now poor jobs data bogging down the recovery, the upswings in markets are a good sign for future growth.

The state of the muni market

I’m not an anti-Obama extremists who hopes he gets assassinated… just an unreal pic

In a recent Fortune article, Meredith Whitney is holding onto her position of a bear market in municipal bonds. Back in December on 60 Minutes, she said that there’d be “50 to 100 sizeable defaults” worth “hundreds of billions of dollars” over the next 12 months. The muni market is worth around $2.9 trillion right now, so hundreds of billions of dollars is… a fuckin’ shitload. While there have been 29 straight weeks of withdrawals from muni-bond mutual funds, actual muni-bond defaults have fallen. From January 1 through April, there were 14 defaults worth around $605 million. That same period in 2010 saw 43 defaults worth around $1.7 billion. So, naturally, a lot of people don’t (and don’t wanna) believe her.

Even though Whitney’s forecast has been condemned for some time, the extent of her firm’s new research might make your ballsack shrink a bit. For instance, since 2003 state outlays have risen from some $1.5 trillion to $2.2 trillion, while tax revenues have increased from $1 trillion to $1.4 trillion. Uh… that is not good. What makes this market different than say, treasury securities, is a muni-bond default is much different than a corporate-bond default. A bondholder can’t force a city into foreclosure, you kind of just have to accept the bond haircut and restructuring if there is no bailout by the federal gov’t. Especially when the economy is in a position like it is now, this uncertainty can more than offset the tax-free attribute of munis. So, if anything, Meredith Whitney telling everyone that there’s gonna be hundreds of billions of dollars worth of defaults could end up being a self-fulfilling prophecy (fuckin’ hate those, right?). Rates are already ridiculously low and we’re not seeing much growth. What happens when they rise due to defaults, and we haven’t even gotten out of the gutter? Don’t expect state debt problems to be solved anytime soon.

Smooth move, Ferguson!

Nobel Prize winning economist and MIT prof Peter Diamond just reported today that he’s withdrawing his name from consideration for the Fed Board. I just finished reading his op-ed in the NYTimes, which can basically be described as “fuck you guys I deserve this”. I mean the title of the op-ed is “When a Nobel Prize Isn’t Enough”… way to make it awkward douche bag.

For those who don’t know, he’s been nominated by Obama about 3 different times to fill 1 of 3 Fed Board vacancies. Each time, hardly any Republicans voted for him, the last one being a unanimous rejection by the GOP. This shouldn’t come as a surprise, as Diamond was one of the biggest supporters of the Fed’s monetary stimulus, QE1 and QE2. Naturally, Republicans want someone in there who will curb the government’s spending habits. So, not shocking at all, Diamond tries to defend himself and his bruised ego in the op-ed. This is where you start to think saying “fuck you guys I deserve this” would’ve prolly been the better move.

After a few paragraphs of mentioning how much he’s chroned up over the years (make no mistake, dude has balled real hard), he starts trying to counter the statements made by Senator Shelby, the main opponent of his appointment. The gist of the op-ed is that he thinks the higher-ups aren’t putting enough emphasis on the analysis of unemployment into their monetary policy ideas. He goes on to explain the technicals of unemployment and how to analyze which type (structural vs. cyclical) is the main “culprit” of our heinously shitty u-rate of 8.7%. He then states that his years of diligent research have allowed him to decide that structural unemployment is the problem… that’s about it.

I’m gonna guess a lot of people are lookin’ around thinkin “shit… might be a good thing he’s dippin’ out now”. If you’re not catching my driftingtons, this guy prolly wouldn’t have gotten jack shit done if he were on the board. He’s basically saying nobody is paying attention to the connection between monetary policy and unemployment. Look pal, we see you’re a smart guy and you obviously know what you’re talking about in regards to what the problem is and blah fuckin’ blah, but you ain’t the only one. Nothing’s gonna go the way you want if you hold up a bunch of charts saying “would ya just LOOK AT IT!?” while your other hand is up your ass. The right dude for the job is gonna be able to take those already well-understood ideas and push them through legislation. In other words, it’s gotta be someone who realizes the political process isn’t gonna change anytime soon, and knows how to work it too. It ain’t gonna be some dude who runs away crying holding up his trophies when nobody listens to him.